Abad Fisheries, Cochin V. DCIT, Ernakulam

ITA 1002/COCH/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64870 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 12-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: P K SASIDHARAN
• Keywords: Bad and doubtful debts
• Section: 234B; 10B; 37

Judgement Text

1 ITA 929/COCH/2008 ITA 1002/COCH/2008 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKARA N(AM) I.T.A NO. 929/COCH/2008 (ASSESSMENT YEAR 2005-06) THE DY.CIT, CIR.1(1) VS ABAD FISHERIES ERNAKULAM KOCHANGADI, KOCHI-682 002 PAN : AADFA9900C (APPELLANT) (RESPONDENT) I.T.A NO. 1002/COCH/2008 (ASSESSMENT YEAR 2005-06) ABAD FISHERIES VS DY.CIT, CIR.1(1) COCHIN ERNAKULAM (APPELLANT) (RESPONDENT) REVENUE BY : MS. A.S. BINDHU ASSESSEE BY : SHRI P.K. SASIDHARAN DATE OF HEARING : 09-08-2012 DATE OF PRONOUNCEMENT : 12-10-2012 O R D E R PER N.R.S. GANESAN (JM) BOTH THE APPEALS OF THE REVENUE AND THE TAXPAYER A RE DIRECTED AGAINST THE SAME ORDER OF COMMISSIONER OF INCOME-TAX(A) DATED 26 -08-2008 AND PERTAINS TO ASSESSMENT YEAR 2005-06. THEREFORE, WE HEARD THE AP PEALS TOGETHER AND DISPOSE THEM OFF BY THIS COMMON ORDER. 2 ITA 929/COCH/2008 ITA 1002/COCH/2008 2. THE FIRST GROUND OF REVENUES APPEAL IS WITH REG ARD TO THE CLAIM OF EXEMPTION U/S 10B OF THE ACT. 3. WE HEARD SHRI A.S. BINDHU, THE LD.DR AND SHRI P. K. SASIDHARAN, THE LD.REPRESENTATIVE FOR THE TAXPAYER. 4. THE ONLY CONTENTION OF THE LD.DR BEFORE THIS TRI BUNAL IS THAT THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 1999 -2000 IN RESPECT OF THE VERY SAME ISSUE IS PENDING BEFORE THE HIGH COURT. THEREFORE, THE ORDER OF THE HIGH COURT HAS TO BE FOLLOWED. 5. WE FIND THAT THE HIGH COURT BY JUDGMENT DATED 02 -09-2011 HAS SET ASIDE THE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 1999-2000 AND DIRECTED THE TRIBUNAL TO RECONSIDER THE CASE ON MERIT. CONSEQUE NTLY, THIS TRIBUNAL BY AN ORDER DATED 28-09-2012 EXAMINED THE ISSUE AND FOUND THAT TH E REQUIRED DETAILS WERE NOT AVAILABLE ON RECORD. ACCORDINGLY THE ISSUE WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION. FOR THE PURPOSE OF CONVENIENCE, WE ARE REPRODUCING THE ORDER OF THIS TRIBUNAL FOR THE ASSE SSMENT YEAR 1999-2000: 11. HOWEVER, THE RELEVANT DETAILS, VIZ., WHETHER T HE SALE PROCEEDS WERE RECEIVED BY WAY OF FOREIGN EXCHANGE O R NOT, WHETHER THE ASSESSEE HAS RECEIVED THE DRAWBACK BENEF ITS ETC., ARE NOT AVAILABLE ON RECORD. IN THE ABSENCE OF SUCH DE TAILS, WE ARE UNABLE TO EXAMINE WHETHER THE ABOVE SAID DECISION O F HONBLE KERALA HIGH COURT SHALL APPLY TO THE FACTS PREVAILIN G IN THE TWO YEARS UNDER CONSIDERATION. ACCORDINGLY, WE ARE OF THE VI EW THAT THE FACTUAL DETAILS REQUIRE VERIFICATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE DEEM IT FIT TO RESTORE TH IS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAM INE THE SAID ISSUE AFRESH IN BOTH THE YEARS IN ACCORDANCE WITH THE DEC ISION OF THE 3 ITA 929/COCH/2008 ITA 1002/COCH/2008 HONBLE JURISDICTIONAL KERALA HIGH COURT REFERRED SU PRA. THE ORDERS OF LD CIT(A) ON THIS ISSUE ARE SET ASIDE IN BOTH TH E YEARS. IN VIEW OF THE ABOVE OBSERVATION OF THIS TRIBUNAL F OR THE ASSESSMENT YEAR 1999- 2000 THIS TRIBUNAL IS OF THE OPINION THAT THE ISSUE FOR THE YEAR UNDER CONSIDERATION ALSO NEEDS TO BE RE-EXAMINED. ACCORDI NGLY THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE OF CLAIM OF EXEMPTION U/S 10B IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RECONS IDERATION ALONG WITH THE CLAIM OF THE TAXPAYER FOR THE ASSESSMENT YEAR 1999-2000. 6. NOW COMING TO THE TAXPAYERS APPEAL, THE FIRST I SSUE RELATES TO BAD DEBT. 7. WE HEARD THE LD.REPRESENTATIVE FOR THE TAXPAYER AND THE LD.DR. SHRI PK SASIDHARAN, THE LD.REPRESENTATIVE FOR THE TAXPAYER SUBMITTED THAT THE TAXPAYER HAS WRITTEN OFF THE AMOUNT DUE FROM THE SISTER CONC ERN, M/S ASIAN SHELLFISH GROWERS PVT LTD. ACCORDING TO THE LD.REPRESENTATIVE , SINCE THERE WAS NO CHANCE OF RECOVERY OF THIS AMOUNT IT WAS WRITTEN OFF. ACC ORDING TO THE LD.REPRESENTATIVE, IT IS INCIDENTAL TO THE BUSINESS ACTIVITY. THEREFO RE, THE CLAIM SHOULD BE ALLOWED U/S 37 OF THE ACT. ACCORDING TO THE LD.REPRESENTAT IVE, THE TAXPAYER ADVANCED THE FUNDS IN THE REGULAR COURSE OF BUSINESS FOR ENSURIN G THE AVAILABILITY OF RAW MATERIAL AT COMPETITIVE RATE. THE ASSESSING OFFICE R DISALLOWED THE CLAIM OF THE TAXPAYER ONLY ON THE GROUND THAT THE CLAIM WILL NOT FALL U/S 36(1)(VII) OF THE ACT. ONCE IT DOES NOT FALL WITHIN SECTION 36(1)(VII) OF THE ACT, THE ASSESSING OFFICER HAS TO CONSIDER THE SAME AS BUSINESS LOSS U/S 37 OF THE ACT. THE LD.REPRESENTATIVE SUBMITTED THAT THE JUDGMENT OF THE APEX COURT IN CO MMISSIONER OF INCOME-TAX VS SARAVANA SPINNING MILLS LTD 293 ITR 201 (MAD) RELIE D UPON BY THE COMMISSIONER OF INCOME-TAX(A) IS NOT APPLICABLE IN THE FACTS OF THIS CASE. 4 ITA 929/COCH/2008 ITA 1002/COCH/2008 8. ON THE CONTRARY, MS. A.S. BINDHU, THE LD.DR SUBM ITTED THAT THE TAXPAYER CLAIMED THE AMOUNT AS BAD DEBT ON THE GROUND THAT I T WAS WRITTEN OFF. FOR ALLOWING BAD DEBT IT HAS TO BE NECESSARILY ESTABLIS HED THAT THE SAME WAS INCLUDED IN THE TOTAL INCOME OF ANY OF THE PREVIOUS YEARS. ACCORDING TO THE LD.DR SECTION 36(2)(I) CLEARLY SHOWS THAT FOR ALLOWING A CLAIM AS BAD DEBT IT HAS TO BE NECESSARILY ESTABLISHED THAT THE AMOUNT WAS ALREADY INCLUDED IN THE TOTAL INCOME. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE AMOUNTS WERE NOT INCLUDED AS INCOME OF ANY ONE OF THE EARLIER ASSESSMENT YEAR. THE LD.DR FURTHER SUBMITTED THAT IT IS NOT THE BUSINESS OF THE TAXPAYER TO ADVANCE FUNDS. THE FUNDS WERE ADVANCED TO SISTER CONCERN FOR DEVELOPMENT OF ACQUA FARM. THE F UNDS WERE ADVANCED FOR DEVELOPMENT OF A FARM WITH AN INTENTION TO CULTIVAT E SHRIMPS. THEREFORE, IT CANNOT BE SAID THAT IT WAS AN ADVANCE OF MONEY FOR THE PURPOSE OF PURCHASING RAW MATERIAL. IT IS AN ADVANCE MADE TO A SISTER CO NCERN FOR DEVELOPMENT OF ACQUA FARM. THE MONEY ADVANCED TO THE SISTER CONCERN MAY BE REPAID EITHER IN THE FORM OF CASH OR IN THE FORM OF RAW MATERIAL. IT CA NNOT BE SAID THAT THE MONEY WAS ADVANCED IN THE COURSE OF THE BUSINESS ACTIVITY. A S RIGHTLY SUBMITTED BY THE LD.DR, ADVANCING OF FUND IS NOT THE BUSINESS ACTIVITY OF T HE TAXPAYER. FOR THE PURPOSE OF ALLOWING A BAD DEBT, IT HAS TO NECESSARILY SATISFY THE CONDITION PROVIDED IN SECTION 36(2) OF THE ACT. SINCE ADMITTEDLY, THE CONDITIONS PROVIDED IN SECTION 36(2) ARE NOT SATISFIED, THIS TRIBUNAL IS OF THE CONSIDERED O PINION THAT THE COMMISSIONER OF INCOME-TAX(A) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER AND THERE IS NO REASON TO INTERFERE WITH THE SAME. ACCORDINGLY THE SAME IS CONFIRMED. 5 ITA 929/COCH/2008 ITA 1002/COCH/2008 10. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE OF RS.3,78,176 TOWARDS CONTRIBUTION TO PROVIDENT FUND AND ESI. 11. SHRI P.K. SASIDHARAN, THE LD.REPRESENTATIVE FOR THE TAXPAYER SUBMITTED THAT THE TAXPAYER ENGAGED CONTRACT LABOURERS AND REMITTE D ESI AND PROVIDENT CONTRIBUTION. ACCORDING TO THE LD.REPRESENTATIVE, THE TAXPAYER WAS LIABLE FOR PAYING THE CONTRIBUTION EVEN FOR CONTRACT LABOURERS . THE TAXPAYER TRIED TO RECOVER THE MONEY FROM THE LABOUR CONTRACTOR; HOWEV ER, IT COULD NOT BE RECOVERED. THEREFORE, IT WAS WRITTEN OFF IN THE BO OKS OF ACCOUNT. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE TAXPAY ER HAS NOT CLAIMED THE AMOUNT IN THE EARLIER ASSESSMENT YEARS; THEREFORE, IT HAS TO BE ALLOWED IN THE YEAR UNDER CONSIDERATION. 12. ON THE CONTRARY, SMT. A.S. BINDHU, THE LD.DR SU BMITTED THAT FOR CLAIMING BAD DEBT, THE TAXPAYER HAS TO NECESSARILY SATISFY T HE CONDITIONS PROVIDED IN SECTION 36(2) OF THE ACT. ACCORDING TO THE LD.DR, THE TAXPAYER CLAIMED THE AMOUNT AS BAD DEBT SINCE IT COULD NOT BE RECOVERED FROM THE LABOUR CONTRACTOR. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT WHEN T HE TAXPAYER CLAIMS THAT IT IS A STATUTORY LIABILITY, IT HAS TO BE CLAIMED IN THE YE AR IN WHICH IT WAS ACTUALLY PAID. IN FACT, IT WAS PAID IN THE EARLIER ASSESSMENT YEAR AN D IT IS NOT KNOWN WHETHER IT WAS CLAIMED IN THE YEAR UNDER CONSIDERATION OR NOT. TH EREFORE, THE COMMISSIONER OF INCOME-TAX(A) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF SECTION 43B, IRRES PECTIVE OF THE YEAR OF LIABILITY, THE PAYMENT HAS TO BE ALLOWED TOWARDS PROVIDENT FUN D AND ESI IN THE YEAR IN 6 ITA 929/COCH/2008 ITA 1002/COCH/2008 WHICH IT WAS ACTUALLY PAID. IN THE CASE BEFORE US, THE TAXPAYER HAS PAID ESI AND PROVIDENT FUND CONTRIBUTION FOR THE CONTRACT LABOUR ERS. THE TAXPAYER CLAIMS THAT IT IS THE STATUTORY LIABILITY OF THE TAXPAYER TO PA Y THE CONTRIBUTION. WHEN IT IS THE STATUTORY LIABILITY IT IS NOT KNOWN HOW IT COULD REC OVER THE AMOUNT FROM THE CONTRACT LABOURER. IF THE TAXPAYER CLAIMS THAT THE AMOUNT WAS PAID ON BEHALF OF THE CONTRACT LABOURERS THEN THE QUESTION OF RECOVER Y OF THE AMOUNT MAY BE CONSIDERED. IN THIS CASE, THE TAXPAYER CLAIMS THAT IT IS THEIR RESPONSIBILITY. IF THAT IS SO, THE QUESTION OF RECOVERY DOES NOT ARISE AT A LL FOR CONSIDERATION. THE DETAILS OF PAYMENT LIKE THE DATE, ETC. ON WHICH IT WAS ACTUA LLY PAID IS NOT AVAILABLE ON RECORD. IF THE TAXPAYER PAID THE AMOUNT BEFORE FUR NISHING THE RETURN OF INCOME U/S 139(1) IT HAS TO BE ALLOWED. SINCE THE DETAILS OF DATES OF PAYMENT ARE NOT AVAILABLE ON RECORD, THIS TRIBUNAL IS OF THE CONSID ERED OPINION THAT THE MATTER NEEDS TO BE CONSIDERED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITY ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL CONSIDER THE ISSUE AFRESH A ND IF THE PAYMENTS WERE MADE FROM 01-04-2004 AND UPTO THE LAST DATE FOR FILING THE RETURN OF INCOME U/S 139(1) OF THE ACT FOR THE YEAR UNDER CONSIDERATION, THE PA YMENT SHALL BE ALLOWED. THE ASSESSING OFFICER SHALL VERIFY THE SAME AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE TAXP AYER. 14. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE OF FOLLOWING BAD DEBTS: 1. ABAD AQUA DIVISION RS. 3,132 2. BRANCH A/C RS. 20,000 3. WATER PURIFICATION SYSTEM RS. 3,000 4. FRIGOSCANDIA EQUIPMENTS RS. 1,11,277 7 ITA 929/COCH/2008 ITA 1002/COCH/2008 15. WE HEARD THE LD.REPRESENTATIVE FOR THE TAXPAYER AND THE LD.DR. THE COMMISSIONER OF INCOME-TAX(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER IN THE ABSENCE OF ANY DETAILS. THE TAXPAYER COULD NOT FILE ANY DETAILS BEFORE THIS TRIBUNAL ALSO. FOR THE PURPOSE OF ALLOWING THE CLA IM AS BAD DEBT, THE TAXPAYER HAS TO NECESSARILY SATISFY THE CONDITIONS PROVIDED IN SECTION 36(2) OF THE ACT. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE TAXPAY ER HAS SATISFIED THE CONDITIONS PROVIDED U/S 36(2) OF THE ACT, THIS TRIB UNAL IS OF THE CONSIDERATION OPINION THAT THE CLAIM OF THE TAXPAYER FOR BAD DEBT S CANNOT BE ALLOWED. ACCORDINGLY, THE ORDER OF THE COMMISSIONER OF INCOM E-TAX(A) IS CONFIRMED. 16. THE NEXT GROUND OF APPEAL IS WITH REGARD TO CLA IM OF BAD DEBT WITH REGARD TO RS. 69,08,033. 17. THE ONLY CONTENTION OF THE LD.REPRESENTATIVE FO R THE TAXPAYER IS THAT IF THE CLAIM OF THE TAXPAYER FOR THE ASSESSMENT YEAR 1999-2 000 IS ALLOWED, THE SAME HAS TO BE DISALLOWED FOR THE YEAR UNDER CONSIDERATION. SINCE THE ISSUE WITH REGARD TO EXEMPTION U/S 10B HAS BEEN REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE-CONSIDERATION FOR THE YEAR 1999-2000, THIS TRIBUNA L IS OF THE CONSIDERED OPINION THAT THIS ISSUE ALSO NEEDS TO BE RE-EXAMINED ALONGWITH THE ISSUE RAISED BY THE TAXPAYER FOR EXEMPTION U/S 10B FOR THE ASSESSME NT YEAR 1999-2000. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE ISSUE OR CLAIM OF BAD DEBT TO THE EXTENT OF RS.69,08,033 IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE SAME AFRESH AFTER DECIDING THE ISSUE OF EXEMPTION U/S 10B OF THE ACT AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER GIVING OPPORTUNITY OF HEA RING TO THE TAXPAYER. 8 ITA 929/COCH/2008 ITA 1002/COCH/2008 18. THE TAXPAYER HAS ALSO RAISED GROUND WITH REGARD TO LEVY OF INTEREST U/S 234B OF THE ACT. THE ONLY CONTENTION OF THE TAXPAY ER IS THAT INTEREST U/S 234B IS TO BE WORKED OUT CORRECTLY. WE HEARD THE LD.DR ALSO . THERE CANNOT BE ANY DISPUTE THAT THE INTEREST U/S 234B HAS TO BE COMPUT ED CORRECTLY. WHILE GIVING EFFECT TO THE ORDER OF THIS TRIBUNAL, THE ASSESSING OFFICER SHALL COMPUTE THE INTEREST U/S 234B IN ACCORDANCE WITH LAW. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSE AND THAT OF THE TAXPAYER IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH OCTOBER, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 12 TH OCTOBER, 2012 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH